We'll start our next session with National Bank of Canada. I'm joined here on the stage with Marie-Chantal Gingras from National Bank, the CFO. Thank you for joining me.
Thanks for having me. It's a pleasure, Darko. Good morning, everyone.
Similar to CIBC who reported earnings just very shortly ago. Seems like a lifetime ago. You know, in this instance, one of the things that National did when it reported its earnings is upped the ROE guidance. You know, the ROE arms race in Canada, as we call it. You participated in it. It was great. The objective for 2026 was raised to 16 from 15 in just one quarter of results. I could probably spend a lot of time on this topic.
Yeah.
Maybe we'll just first start with the obvious questions. What was the biggest primary driver of the increased ROE objective in 2026? I'll maybe follow up on. What happened so quickly?
Yeah
That you raised it?
Yeah. Absolutely. You're right, we did raise our ROE target for 2026 from 15%- 16%. Actually, there isn't one single reason why we did so, but several, all of which highlights our really disciplined execution. Couple of things. First, very strong balance sheet growth in terms of the P&C banking. As you saw, loan growth was really high on the commercial book, excluding CWB, was 12%. Our mortgage book was also growing at a very interesting rate, 10% year-over-year. Good balance sheet growth on the P&C. Capital Markets had a really good start to the year, so we were very happy about that. We're seeing good pipeline on our corporate and investment banking and a resilient market condition.
Therefore, it allow us to position our PTPP expectation for the capital markets that was from CAD 1.8 billion-CAD 2 billion closer to the upper range. That was one, another reason. You saw our CWB cost and funding synergies were really also came in strong. We're at CAD 176 million to date. We continue to deliver really good execution on those. On the other segment, we also positioned our guidance for PTPP loss that was initially between CAD 225 million-CAD 275 million. Now we are expecting that PTPP loss closer to the lower end of the loss, so closer to CAD 225 million. We continue to see good growth on the U.S. SFI. As you see, as I said, not one single reason, but many.
Lastly, we were really active on our NCIB. We executed in Q1 almost half, actually 45% of the initial NCIB plan. We also announced, which was approved this morning, an upsize of that NCIB to 14.5 million shares, from 8 million. All good reasons that made us very comfortable in changing our ROE target to 16% for 2026.
You know, you run-
Mm
Through that list and, you know, when I first saw the upped target.
Mm-hmm
I thought, "Why don't you up the target for 2027?" What prevented you from upping the target in 2027?
Yeah. Good. Very good question. 2027 is. We're very comfortable with our 2027 target of 17+. Remember, it's contingent on executing on multiple fronts. Continued organic growth, delivering our Laurentian Bank transaction, continued execution on our CWB revenue synergies, delivering AIRB conversion. Lots of factors to consider for that 2027 target. One aspect. Well, there are two aspects maybe that I wanna highlight. First, there are two elements for which we've guided middle of the range of our target. Earnings growth between 5% and 10%. That's one of them. Our revenue synergies, we also guided in the middle range of our target. That's upside for us in terms of the ROE for 2027.
The two aspects that is not included in our target for 2027 is the P&C upside that we see. We've mentioned at the earnings call that we've started a strategic plan on the retail banking transformation, and we will be in a position to give more of an update and a potential upside on that plan more towards the end of the year. That's not included in our ROE target for 2027. We've also maintained the credit profile in the same range as we have for 2026, so between 25 and 35 basis points of impaired loans. At the moment, we felt that it was more prudent to keep our ROE target at 2027 at 17%+ . That said, the plus is more likely.
Mm.
We'll continue to update as we progress.
Again, I don't wanna. You know, I could end up probably burning the whole half hour on this one topic.
Yeah.
I guess, you know, one of the other things that we saw in your waterfall, in the ROE to the 17%+ , it seemed like there was a fairly large drag from RWA growth. Maybe we can talk a little bit about that.
Mm-hmm
Maybe touch on.
Mm
The big growth that you're seeing in P&C as well. I mean, if, you know, as you mentioned, there was really strong commercial growth and really strong mortgage growth, which some other banks aren't seeing at all.
Mm-hmm.
Maybe first let's touch on the big RWA drag component.
Yeah.
If you can weave in the strong growth that we saw.
Yeah. We've spent, you know, some time reflecting on earnings growth for 2027, and our assumption behind that RWA consumption is really in line with what we've been seeing in terms of organic growth, our historical organic growth. You're right, we've had really good growth over on commercial and the mortgage book. Those assumptions are still present as we continue to look forward. We're still expecting, you know, the same kind of RWA consumption, the same organic growth coming from our businesses, good balance, diversified business growth. That's what we've included in line with the earnings growth that we target between 5% and 10%.
What is it that I mean, it's hard for us on the outside to sort of see and understand what it is that's causing this grab of market share. I mean, is it rate on the mortgage side? What is it that you're doing maybe differently on mortgage growth, and what might you be doing differently in commercial?
We're seeing on the mortgage. The mortgage book has been really growing nicely since about maybe half of 2025. We've continued to see quarter-over-quarter good growth on the mortgage book, so that's you know good trends. I believe that there's some good fundamentals in the province of Quebec that you know positions us maybe a little bit differently than other provinces, whether it's delinquency rates that are a little bit lower in Quebec than the rest of Canada. As you know, house prices are lower in Quebec. Those are economic fundamental factors that contribute.
In terms of pricing, we have not changed our strategy in terms of the mortgage market in the sense that we continue to favor, you know, client acquisition and good growth, not despite rates. That's the strategy that we continue to apply on the mortgage book. On the commercial book, well, we've been pretty consistent with the commercial, growing in the low double-digit growth, for the commercial book, excluding CWB. As we are now integrating, we finalized, as you know, our fourth and final client migration just recently, so we'll be able now to look at the book on a combined basis.
In the first half of the year, as expected, we knew that the commercial CWB book was gonna decrease a little, and we do expect that in the second half of the year, that book will pick up in terms of growth, and we continue to be very confident in achieving our high single-digit growth in terms of loan for the combined commercial book by the end of this year. Those are the assumption and a bit of the explanation of where we see our book evolving.
Maybe that's a bit of a segue into the next question, because I did wanna touch a little bit on the price of oil, some of the stuff.
Yeah
that we're seeing out of the Middle East. Is there anything there that could change, you know, the view on growth for CWB? I mean, Alberta's somewhat-
Mm
Tilted towards oil. Have you guys thought about-
Yeah
Like, where are you? I mean, it's just really recent, right?
Yeah.
So-
Yeah
Maybe you can just touch on.
You're right.
On that.
It is very recent, and maybe actually there are two elements maybe that I can share. Our exposure in terms of oil and gas, I'll tackle that. Maybe a word on capital markets.
Yeah
Because of, you know, market volatility, with everything going on in the Middle East, does have an impact. First of all, Capital Market, as you know, is a diversified business by design. It's an all-weather franchise that can withstand cycle and generate strong results. That's, you know, the general overview of the Capital Markets. Now, you're right, with market volatility that we're seeing, the defensive positioning of the capital market businesses is a strength. It's a strength to the franchise, and it's something that allows them to withstand different events. What's going on in the Middle East is one of them, just like many others. Defensive positioning in the capital markets considering what's going on recently is a strength.
There's an execution portion of it, making sure that they can seize opportunities when there's dislocation in the market. That execution, Capital Markets has been very good at that. In terms of exposure, we looked at our book. In terms of oil and gas, our exposure of our total loan book is approximately 1%. It's not something that's very material. When you look at our exposure in terms of Middle East, it's even less than 1%, and our exposure is mostly in sovereign debt. Those are maybe the elements, as of, you know, just a couple of days that we're seeing as impacting National Bank.
It's interesting because last year in Q2, there was an awful lot of volatility.
There was.
I think you produced one of the biggest trading results we've ever seen, and obviously it's come down since then.
Phenomenal.
Here we are now.
Record
With lots of volatility in the marketplace. What's the early read on trading given your defensive positioning? You know, should we be expecting trading results that were similar to last year, or?
Well-
That's a very high watermark, so I'll hold you to it.
It is. I think last year was, you know, perfect storm in terms of exceptional conditions with phenomenal revenues over CAD 1 billion for Capital Markets. I think those are really, as I said, exceptional results. Obviously, market volatilities with a defensive position like we have is favorable. It's a strength.
Yeah. Okay. You touched on it earlier. Just to wrap up this whole discussion on ROE, we got a little sidetracked there. Wanted to touch on the last thing, which you just mentioned, the upping of the NCIB. It still feels like-
Mm-hmm
Canadian banks are carrying a lot of capital. If I recall, if I go back long enough, I just had a lot of conversations in the past where there was almost a little bit of a reluctance to buy back stock at National Bank.
Mm-hmm.
Can you talk about, you know, your stock price, is that part of the calculus for whether you wanna buy back stock? Or how should we think about your buyback, and your intentions on the buyback relative to your capital levels, which are very high?
Yeah. Maybe one aspect that's important is our overall strategy in terms of capital allocation, and that has been consistent over time. We always wanna favor first organic growth, then comes sustainable dividend growth. Small tuck-ins, what we're seeing at the moment is mostly in the P&C world or in the wealth management. Lastly, capital for us is a complement to our strategy. Now, with the level of capital that we are sitting on at the moment, last year, we initiated a first portion of our NCIB program. Of course, price is one factor to consider, the stock price, but it's certainly only one of many. Again, capital buyback is, you know, a complement of our strategy, and we have been very active.
You're right, in the past couple of years, maybe we weren't so active in terms of buybacks. Since we started our program, we have been very active, and we intend to continue to be active with this new expansion that was just approved this morning, up until September. That buyback is excluding the benefit that we're expecting from the AIRB conversion that's planned in Q4 2026, therefore opening the possibility for further buybacks in 2027, considering that we wanna converge to a 13% CET1 ratio by the end of 2027, which is one factor to our ROE guidance.
That's exactly where I wanted this conversation to go. Because, you know, I've modeled 63%. You know, we've got all these funny ways of coming up with-
Mm-hmm
Some numbers sometimes. I've modeled 63% of your NCIB to be used as and I can't get you to 13% by the end of 2027. You know, maybe I have to up the amount of buyback, maybe I have more organic growth.
Well, as I said.
Like-
You know, there's open possibilities for more buybacks in 2027.
Yeah.
There you go.
Fair enough. Okay. Moving on to a few fundamental things I wanted to touch on real quick. We did see good NIM expansion, and it was what? It was 5 basis points quarter-over-quarter.
Yes, it was.
for Q24. You were previously saying flat all banks. Maybe, you know, what drove the increase, and how should we think about the NIM for the back half of the year?
Going forward. Yeah. You're right. There was substantial increase in the NIM in Q1, five basis points. A couple of factors explaining that increase. First, we've had a prepayment in Credigy of CAD 12 million that did increase the NIM Q-over-Q of about one basis points. The P&C NIM was also up two basis points this quarter. Good NIMs on both loans and deposit spreads. That was good as well. We had a reclass in terms of capital markets from trading to non-trading that also impacted the NIM. When you look at Q2, obviously the prepayment from Credigy will create some pressure.
Mm-hmm
On the NIM going into Q2. Secondly, we continue to see in terms of the P&C good loan spreads. However, this will be offset by a balance sheet mix as loan growth will continue to outpace deposit growth. There was good performance in treasury also in Q1 that we don't necessarily expect in Q2. Therefore, we do expect the NIM in Q2 to go down a couple of basis points, and thereafter, up until the end of 2026, we expect the NIM to remain relatively stable.
Okay. Great. Switching gears a little bit to ABA, a topic that unfortunately I still get a lot of questions on.
Yeah
From clients.
Yeah.
I wanted to just sort of touch base on it a little bit. We had pretty good loan growth, 11% year-over-year.
Mm-hmm
At ABA. Net impaired loan formation has decreased. You know, the question that I continue to get on ABA is the nature of the credit cycle there.
Yeah.
Where we are. Despite going through this, what at least seems to be like a prolonged credit cycle.
Mm-hmm
You've got good loan growth. If your appetite for growth at ABA hasn't changed, why not? Maybe you can touch a little bit on where you are in the credit cycle for ABA.
Yeah
your appetite to continue to grow it. You know, one of the things that I've been getting some feedback on is, you know, the environment in Cambodia stable enough? Is it like
Mm-hmm.
Just overall maybe give us the thoughts on.
Yeah
Your appetite to grow in Cambodia.
In Cambodia. Yeah, good question. Maybe a few things on ABA and on Cambodia. I'll start with maybe just a few words on the economy there. First of all, the economy, we still see strong, long-term potential, in Cambodia. Historically, GDP growth is closer to 5%-6%. At the moment, you are right. We're in the middle of a credit cycle also in Cambodia, and the economy is operating at a lower level than we usually see. We expect GDP growth closer to 4%, this year, which is a little bit lower than 2025, and as I said, lower than historical economic growth that we usually see. That being said, it's still better than, you know, lots of economies over in North America.
We still see good growth loan potential over in ABA. Even though loan growth 11% was a good quarter this year in Q1, it has been growing at a higher pace in the past. Even at a lower pace of loan growth, we still continue to attract new clients, and therefore attract deposits. That's because of the digital banking capabilities that ABA offers, as well as the cash management. Those are important aspects that you know makes us continue to be very comfortable in our appetite to grow at ABA. It is still as I said in the middle of a credit cycle.
We're seeing formations at, you know, lower level than the peak we've seen in Q4 2024, which is the range that we guided that was gonna be the peak, slower in the past couple of quarters. We're happy about that. We continue to be prudent, and the resolution process over there, as you know, is slower than what we see in other region, but we're still very comfortable with that legal process. Maybe one last thing is the fact that I was talking about the potential growth in terms of economy, but in terms of the ASEAN region.
Mm-hmm
Cambodia is one of the regions that's growing the most. We're seeing good uptick in terms of exports where, you know, 15% growth year-over-year, thanks to good local regional exports and U.S. deals also that help.
Mm
This is a little bit an overview on ABA.
I guess the You know, just to wrap up on ABA, I think the question is more about, as I think of it, this has been like a huge run, home run for National Bank, right? I mean, you bought this little-
Yeah
ABA Bank in Cambodia, you've built it up.
Mm-hmm.
Is it something that we really want? Well, I mean, now it's become a part of your earnings stream that's pretty big. I, to my knowledge, you've never taken a dime out of there.
Nope.
Right? You've put in capital.
Yeah.
If you continue to grow, like, does it mean potentially putting more capital to work in Cambodia? Is that something that you guys have considered, and what would you do?
It's definitely a great asset. We're very happy about the growth we're seeing.
Yeah.
We're certainly not gonna stop it from growing.
Yeah.
Putting more capital is not something that we have in mind.
It's self-funding.
Yeah
At this point?
Yeah.
Okay. Interesting. I think the last time you put capital in was 2025 or 2024?
The end of 2024, I believe.
Okay. Yeah.
Yeah.
Okay, great. Moving on to, you know, I think one of the things that most Canadian banks have talked about, but again, National seems to be doing really quite well, is cost control. Even ex-CWB. We won't even get into the synergies there. Mainly in the, you know, mainly in the personal bank. Maybe you can talk a little bit about the opportunities that you see there.
Mm-hmm
to reduce costs, especially in 2026. When do you see the impact of these cost control in 2026 or is it really a 2027 phenomenon?
Yeah. Lots of opportunity in the P&C segment to improve efficiency, and a significant contribution will come from retail banking. Those efficiency and initiatives are structural. They're not one-time cost. We'll be working on both sides of the equation of efficiency, both on revenue generation and cost efficiency. As always, we'll be very strategic on where we wanna invest to generate revenue, to generate cost savings, and also to improve client experience and risk management. As you heard us say at the last earnings call, we just started a strategic plan for the retail banking. We'll be able to give more details towards the end of 2026. Until then, Julie's new mandate is really clear. What we wanna do is strengthen the retail banking by improving client experience and by generating structural cost savings.
By doing that, we wanna make sure that we generate profitable returns. Digital will be at the heart of this, and we also wanna raise the volume on simplification and making the bank more easy to deal with. We'll be tackling this at a very high level in three ways. The transformation will start with the customer journey. That's at the heart of the transformation. The second portion will be improving productivity on our distribution and service model. We wanna make sure that we adapt according to how the client wants to bank these days, and we'll be adapting our model accordingly. The last piece is attacking the complexity around IT, operations, credit processes. We'll be working on addressing those elements. Three aspects.
We do see lots of opportunities in terms of improvement of the efficiency. As I said, we wanna make sure that the retail banking becomes a really stronger bank with improved efficiency. It is not a one-time cost process that we're doing. Really working on structural efficiency while improving client experience to generate sustainable returns over time.
As I hear you explain it certainly sounds like 2027 and beyond is where we can really start to see some of the impact. As I also hear you explain it, you know, two letters come to mind, AI. How important is that in this journey?
It's as important as it is for any other segment at the bank. For us, AI is a tool to generate more efficiency. It's not an initiative by itself, but it's really something that's embedded everywhere in the bank, and we've already used some of the benefits of AI, whether it's in our call centers. Even with the CWB client migration, we were able, with AI, to really accelerate the timing of our execution, which allowed us to generate the cost and funding synergies at a quicker pace than that we expected. It is one tool that we're gonna be using.
Okay. With that, we're running out of time. What is your key message for investors today?
Well, as you said, we're very pleased with our Q1 results. Again, as always, disciplined execution, diversified business model, solid capital position, a prudent credit position as well. Those are, you know, elements of our strategy that allow us to generate returns over time, and we'll continue to do so.
Excellent. Thank you so much, Marie-Chantal.
Thank you, Darko.